ASEAN—Trade switching from the US-China trade impasse offers a silver lining

Trade negotiations have hit a major stumbling block after President Trump increased existing 10% tariffs on US$200 billion of Chinese exports to 25%. The US has also threatened to levy tariffs on an additional US$300 billion of Chinese goods if negotiations continue to proceed at a glacial pace. China has retaliated with tariffs of its own.

The ongoing dispute has sparked fears of a global economic slowdown that would hit exporting countries hard. South East Asian economic prospects are particularly vulnerable as these countries are highly dependent on China, their largest trading partner. But there might be a silver lining to the gloomy outlook. Research from the Asian Development Bank (ADB) suggests South East Asian economies could benefit from the current trade impasse as tariff-affected Chinese and US exports could be substituted with exports from Indonesia, Malaysia, Philippines, Vietnam and Thailand (ASEAN-5). This would be a positive for these ASEAN-5 economies (Chart). Furthermore, the US-China trade war could accelerate the relocation of production and supply chains out of China and into Asia’s lower-cost manufacturing hubs.